UK House prices, trends and housing market analysis

Housing sales and prices

UPDATE: The UK under Boris Johnson may sacrifice the sterling in favor of rising asset prices, including homes. Should the pound sterling see further significant declines, UK property will be seen as cheap by international investors. 

Halifax, one of the UK’s biggest mortgage lenders, reported an unexpected 2.2% increase in home prices in December 2018 when compared to November. This was the fastest monthly increase seen in almost two years, despite previous forecasts predicted by economists in a poll by Reuters. This increase comes despite warnings of the potential negative impact of Brexit, in less than 90 days, for the economy.

However, the political uncertainty has contributed to a slow moving market in the past year, combined with a rise in prices that ensued over the preceding few years which also affected home affordability. Market statistics show that in the final quarter of 2018 annual increases in home prices at 1.3%, the lowest since 2012.

Weaker wage rises and the fears of a no-deal Brexit have lead to warnings by analysts of a restrained market in 2019.

There are significant differences in house price growth across the UK, but according to the UK House Price Index, the average cost of a house in Britain is £ 230,630. While house price inflation has risen sharply in some parts of the UK, the midlands and the north-west of England for example, values in London and the south-east have shown an insignificant increase or have even dropped.

Contributing Factors

There is consensus among market surveyors and estate agents that the biggest cloud hanging over the UK property market is the uncertainty over the Brexit deal. They also take into account the usual dip seen in the property market over Christmas; this one was the quietest in many years with fewer viewings and sales.

According to the Bank of England, the divorce between the UK and the EU will have a significant impact on the housing market. Based on their financial stability model they predict that housing prices could fall as much as 30% if there is a no-deal Brexit. The financial crisis 10 years ago resulted in a 17% drop. The Royal Institution of Chartered Surveyors does not agree with these statistics and according it will not exceed 14%.

Estate agents also report record lows in inventories, with an average of 42 properties per branch. Besides declining buyer interest, interest rate hikes, lack of housing supply, Rics also highlighted the lack in affordability to purchase.

Strict lending criteria make the purchase of a home prohibitive, with all indications showing that potential buyers might opt to renovate or enlarge existing homes instead of buying. Those properties that do make it on the market will be few and far between and will be due to relocations, death, divorce or debt.

Rental yields

Despite falling property values, rental levels continue to rise in the UK. Rentals have not risen as much as property prices did in the preceding years but London is still extremely expensive.   London is expected to have the highest rise in rentals at 4%, with areas outside the capital at 3%. Properties available to rent in London have fallen by 22%. After London, places such as Bootle, Runcorn and Birkenhead in the north-west have the biggest demand for rental properties.

Gross rental returns in London, for a 50 square meter apartment, are at around 3.2%, whereas a 120 square meter apartment will yield 2.6%. Some of the more expensive areas in London yield higher returns on bigger apartments, defying the universal rule that smaller properties offer bigger yields. This is mostly due the UK’s expensive high stamp duties in some areas and on luxury properties; leading to a preference for renting among people who stay within the city for shorter periods of time. The purchase and selling cost of these properties far exceed the total costs of renting.

Mayfair, Marylebone and Soho are the areas which seem to have the highest yielding 3 bedroom apartments with a 5.3% return. The areas attract buyers from the Arab market.

Foreign buyers have preferred London for many years, but the British public feels that they have contributed to the exorbitant prices in the city. Further measures are been considered, of which one is higher council taxes and some politicians are fighting for an added mansion tax to be voted in.

The UK law is pro-landlord and allows for landlords and tenants to freely agree on rent levels and increases. Tenants can be evicted on a two month notice; however the process could disadvantage the landlord.

Taxes and costs

Rental income, sourced from the UK, is taxed at a flat rate of 20% and is withheld by the tenant or letting agent. There are certain deductions allowed which can bring the effective tax rate to approximately 9%.

Previously exempt from capital gains tax, foreign buyers are now also liable this tax. The rates are progressive and range from 18% to 28% for all property owners.

Inheritance tax is paid on all assets or estates exceeding £ 325,000 and is set at 40%. The estate also includes the value of any gifts (there are exceptions to smaller ones) made by the deceased within 7 years of death.

UK resident are taxed on their worldwide income. They are also liable for capital gains taxes on overseas properties too.

Even though property purchase costs are moderate in the UK, high end properties will cost more. The costs can range from 3.90% to 12.16% of the purchase price and buyers need to employ the services of a lawyer and a real estate agent.


On an international level the outcome of the looming Brexit is making it hard to predict how the housing market will react. Buyers and sellers seem to be sitting tight and watching how it will all unfold. The UK is scheduled to leave the EU on March, 29, 2019.

At a national level, the UK is still a stable country with a relatively strong economy, a low overall unemployment rate at 4.1%, and an inflation rate that is currently at 2.4%. UK growth relies heavily on its services sector which also attracts immigrants.

Housing prices have grown faster than income ratios and availability to credit facilities make purchasing extremely difficult for first time home owners. Some areas have weaker local economies, which may vary in different neighborhoods of the same town and might be holding prices back, while many contributing factors -crime, types of schools etc. – could affect prices.